Chapter $2$ Assignment

$4.$ Factors that affect equilibrium in the market for loanablefunds

For each of the given scenarios, use the graphs to $(1)$ show what happens in the market for loanable funds and $(2)$ help answer the questions that follow.

Scenario $1$: Individual Retirement Accounts $($IRAs$)$ allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $$5,000$ per person. Now suppose there is an increase in the maximum contribution, from $$5,000$ to $$8,000$ per year.

Market for Loanable Funds

This change causes savers to supply

Ioanable funds. Because the quantity of loanable funds supplied is now

the quantity

of loanable funds demanded, there is

pressure on interest rates. This change in interest rates causes a$($n$)$

in the

quantity of loanable funds demanded.